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FOMC Likely to Keep Rates Unchanged in March After Hot Inflation Report

Wall Street braced for a harsh reality as unexpectedly high inflation data triggered a sharp downturn in major indexes on Tuesday. The Labor Department’s report revealed a significant surge in US consumer prices for January, surpassing expectations and driven by increasing shelter costs. This unanticipated spike dashed investors’ hopes for imminent interest rate cuts.

The Dow Jones Industrial Average experienced its largest one-day percentage decline in nearly 11 months, plummeting by 1.4%.

Other prominent indexes reflected the pessimistic sentiment, with the S&P 500 and Nasdaq Composite both experiencing losses of 1.4% and 1.8%, respectively.

Following the release of the Consumer Price Index (CPI) data, the Chicago Mercantile Exchange (CME) witnessed a substantial increase in the likelihood of the Federal Open Market Committee (FOMC) maintaining unchanged rates in March. The probabilities surged from 53% at the end of January to an astonishing 92%, indicating a near-certainty of a more restrictive monetary policy.

Bitcoin Remains Stable Post CPI Data

While most asset classes experienced a downturn, Bitcoin demonstrated resilience. Despite briefly dipping below $49,000, it remains significantly higher than its pre-data release price point. Currently trading around $49,500, the cryptocurrency even boasts a 15% gain over the past week.

This contrast underscores the distinctive risk-reward profile of Bitcoin compared to traditional assets. While it may not be completely immune to broader market dynamics, its volatility can sometimes serve as a shield against unexpected events.

However, uncertainty looms for the broader market. CME data also indicated a notable decrease in bets for a rate cut by the FOMC in May. Prior to the inflation report, approximately 58% of traders anticipated a reduction, but that figure has now dwindled to just 36.1%. Attention now turns to June, where expectations still linger for a potential cut, albeit with less conviction.

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